Fiscal Pressure, Tax Competition and Environmental Pollution

As one of the strategies local governments adopt in response to fiscal stress, tax competition influences the social optimum level of public goods such as environment. This paper aims to investigate the mechanism of regional tax competitions from the perspective of financial stress. Recently, the effect of tax competition on environmental pollution rises gradually. Existing empirical researches mostly apply a fiscal decentralization-based perspective and ignore the spatial correlation between pollution and tax competition. Under the perspective of financial stress, this paper measures the impact of inter-regional enterprise income tax competition and value-added tax competition on environmental pollution of 30 provinces, using empirical analysis, and then estimates the direct effect, indirect effect and total effect based on it from year 2004–2014. It’s been found that inter-regional tax competition not only brings negative influence to local environment, but also makes the environmental quality become worse in spatial correlation regions. These findings are of enlightening politic revelations to further standardize enterprise tax competition among local governments, and to promote the sustainable development both in economy and environment.